Banks Upbeat On Growth Prospects --- BSP Survey

Local banks remain resilient and expect to sustain their growth path in the next two years with a recovering economy post-pandemic, adequate liquidity, and capital buffers that can shield them against any external risks.

Photo Insert: The local banking sector expects to post double-digit growth in assets, loans, deposits, and net income this year and in 2024, and to continue to improve its asset and loan quality indicators.

Based on the sixth Bangko Sentral ng Pilipinas (BSP) Banking Sector Outlook Survey (BSOS), which covered the first six months of 2022, the banking sector expects to post double-digit growth in assets, loans, deposits, and net income this year and in 2024, and to continue to improve its asset and loan quality indicators.

“Philippine banks likewise plan to maintain risk-based capital, leverage, and liquidity ratios at levels higher than domestic and global standards to support expansion in their operations and promote institutional stability,” said the BSP recently.

The latest BSOS covered all 45 universal and commercial banks, 43 thrift banks, 80 of 403 rural and cooperative banks, and two of six digital banks. All banks surveyed have indicated intentions to maintain risk-based capital levels higher than 10% based on the BSP minimum, and eight percent according to the Bank for International Settlements standards.

As for liquidity buffer, which the BSP said “serves as a safeguard for banks to thrive amid a volatile market environment while enabling them to take advantage of business opportunities presented by the growing economy” -- the banks also intend to maintain an adequate level of liquidity buffer for their lending and investment activities.

About 78.9% of the surveyed banks said assets will expand as credit support for the country’s financing needs in the next two years. The report also said 70.6% of banks expect double-digit deposit growth to fund both asset and loan growth in the short term. The majority projects 10%-to-15% assets and deposit growth in the next two years.

Meanwhile, 77.9% of 170 banks surveyed said they expect profits and net income will continue to post double-digit growth this year and in 2024 in anticipation of improvement in the country’s economic condition.

When it comes to loan quality, the BSP said 52.4% estimated a non-performing loan (NPL) ratio of above five percent in the next two years. This is considered “low and manageable expectations” on soured loans.

Big banks’ NPL ratio projection is about two percent to three percent in the next two years while most of the large lenders estimate their NPL coverage ratio to be at least 75% to more than 100%.

As in all BSOS, the question on digitalization and sustainable lending is highlighted as bank presidents and other top executives are asked about their respective banks’ plans and progress. Basically, the survey covers six sections including growth outlook, business strategy, risk assessment, impact of regulations, and digitalization and cybersecurity preparedness.

The BSP said digitalization of products and services is still identified as a top strategic priority. “Related to this, majority of banks have already embarked on improving their digital capabilities to better serve their clientele. In terms of area of focus, banks identified deposit operations as the most important area of technology application followed by payment systems,” said the BSP.

The BSP said about 51.9% of surveyed banks said they are right on schedule in their digitalization efforts while only 1.9 percent of banks said they are ahead of schedule. Another 38.9% of banks are still in the planning stage of digitizing products and services. Mostly it is the big banks that are more advanced in their digital transformation process.

Meanwhile, 47.5% of surveyed banks said they were “prepared” to “handle and manage” cyber threats. More than 50% of the big banks and thrift banks said they can deal with cyber-related attacks. About 31.7% said they are worried about the financial losses that result from cyber crimes, followed by data breaches and hits to banks’ reputations.

“Mindful that the accelerated shift of financial transactions towards digital platforms may give rise to greater cybersecurity risk, most of the respondent banks underscored the importance of continuous monitoring and surveillance, and a reliable information technology (IT) department to ensure a quick and appropriate response to IT and/or security incidents. Banks have also invested in updated security tools, performed periodic vulnerability assessments, and enhanced their security framework, among others,” said the BSP.

After digitalization and readiness to counter cyber attacks, another challenge for banks is sustainable finance and how to grow this. According to the BSP, the BSOS results showed a “remarkable” increase in organizational awareness towards sustainable financing. During the first semester of 2022, 70% of surveyed banks consider sustainable financing as highly important.

“Among those banks with plans of being involved in sustainable finance, most expressed willingness to finance projects in support of agriculture, solar power, transportation, and water supply management and treatment,” said the BSP.

About 81.1% of big banks, 69.7%of thrift banks, 63.2% of rural and cooperative banks, and 100 percent of digital banks considered sustainable financing as highly important. The BSP said 85% of banks were planning to finance sustainable projects, and they intend to issue green, social, and sustainability bonds and grant sustainable loans.

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